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Dairy’s Declining Cash Market Pressures Futures, Overall Price Outlook

Published on: 19:23PM Jan 19, 2015

The Margin Protection Program may play a bigger role this year than earlier thought.

What has been feared could happen is happening. Cash prices are declining putting pressure on futures prices, which, in turn, is lowering the price outlook for the year.

Analysts continue to make downward revisions to the price average for the year as prices weaken and milk production continues to increase. A few months ago there was the prevailing thought that the Margin Protection Program (MPP) would have little relevance in 2015. However, that has changed dramatically, with the potential now of providing income support for much of the year, depending on what level of protection was chosen. Current futures prices and feed prices indicate substantial payouts could be made if current prices come to fruition.

There is no other safety net for dairy producers other than MPP or through the use of futures, options, forward contracting or the LGM-Dairy insurance program, of which the funds are nearly used up for the year. The decision to use none of these leaves one open to whatever the market will provide, and it certainly does not look good at present. At one point this past week, March, April and May Class III futures contracts traded below $14.00. We have not seen an announced Class III milk price below $14.00 since January 2011.

USDA extended the sign-up period for MPP twice in an effort to allow more time for dairy farmers to become more knowledgeable and comfortable with it. This did result in good participation, considering it is a new program. USDA recently released statistics on participation of dairy farms by state.

The state with the highest percentage enrollment of licensed dairy herds was Nevada, with 90% participation. Keep in mind this is the percentage of herds in that state, with each state having a different numbers of herds. This does not reflect actual milk production of any individual state. Utah was second with 80% enrollment of the licensed herds in the state. Nebraska followed at 78%; Massachusetts at 76%; Georgia at 74%; Illinois, Arizona, and North Carolina at 72%; Colorado and Texas at 71%; and Connecticut at 70% participation. All other were lower than 70%. The highest milk-producing state of California had 69% participation while No. 2 Wisconsin had 54% participation. The state with the lowest participation was Wyoming with just 5%.

However, numbers are a bit different when the approximate amount of milk enrolled under the program is calculated. California tops the list with 41.256 billion pounds signed up at the various price levels of margin protection from $4.00-$8.00. Wisconsin was second with 27.572 billion pounds, followed by New York at 13.469 billion pounds; Idaho at 13.431 billion pounds; and Pennsylvania at 10.565 billion pounds. All other states were less than 10.0 billion pounds covered under the program. The chart below is a complete breakdown of coverage and milk production provided by Brian Gould from the University of Wisconsin department of Agriculture and Applied Economics.

(Click here for printable pdf version)

 

 

 

 

 

 

 

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State-by-State 2015 Margin Protection Program Enrollment

State

Licensed Dairy Operations     (NASS 2013)

U.S. Milk (NASS 2013)

Number

% Enrolled in MPP

% Contracts with Margin Coverage   > $4

Total Production [mil lbs]

MPP Operation's Total Milk

 Production [mil lbs]

% of U.S.

Alabama

45

29%

8%

120

35

0.0%

Alaska

3

67%

0%

3

2

0.0%

Arizona

110

72%

23%

4,489

3,224

2.7%

Arkansas

85

61%

65%

105

64

0.1%

California

1,515

69%

35%

41,256

28,457

23.8%

Colorado

130

71%

37%

3,322

2,351

2.0%

Connecticut

130

70%

81%

371

260

0.2%

Delaware

40

50%

20%

94

47

0.0%

Florida

130

66%

34%

2,383

1,576

1.3%

Georgia

240

74%

51%

1,560

1,151

1.0%

Hawaii

2

50%

0%

30

15

0.0%

Idaho

550

66%

29%

13,431

8,816

7.4%

Illinois

745

72%

53%

1,879

1,352

1.1%

Indiana

1,315

33%

40%

3,830

1,264

1.1%

Iowa

1,425

45%

58%

4,606

2,082

1.7%

Kansas

325

60%

51%

2,932

1,759

1.5%

Kentucky

780

47%

60%

1,076

509

0.4%

Louisiana

130

61%

47%

206

125

0.1%

Maine

300

62%

47%

606

378

0.3%

Maryland

470

43%

42%

972

414

0.3%

Mass.

155

76%

79%

230

175

0.1%

Michigan

2,030

53%

48%

9,164

4,821

4.0%

Minnesota

3,865

69%

73%

9,140

6,314

5.3%

Mississippi

100

65%

38%

185

120

0.1%

Missouri

1,290

48%

79%

1,349

647

0.5%

Montana

70

49%

59%

298

145

0.1%

Nebraska

200

78%

54%

1,165

903

0.8%

Nevada

20

90%

17%

644

580

0.5%

N.H.

120

58%

81%

271

156

0.1%

New Jersey

70

64%

62%

127

82

0.1%

New Mexico

140

64%

17%

8,057

5,122

4.3%

New York

5,030

48%

57%

13,469

6,520

5.5%

N. Carolina

250

72%

50%

935

669

0.6%

N. Dakota

110

58%

69%

342

199

0.2%

Ohio

2,930

34%

37%

5,448

1,854

1.6%

Oklahoma

180

52%

37%

790

413

0.3%

Oregon

260

63%

28%

2,514

1,595

1.3%

Pennsylvania

7,200

30%

58%

10,565

3,171

2.7%

Puerto Rico**

313

12%

23%

599

75

0.1%

Rhode Island

15

67%

80%

17

11

0.0%

S. Carolina

75

33%

24%

264

88

0.1%

S. Dakota

300

69%

56%

2,023

1,403

1.2%

Tennessee

390

55%

40%

767

419

0.4%

Texas

460

71%

54%

9,610

6,790

5.7%

Utah

220

80%

34%

2,036

1,638

1.4%

Vermont

930

63%

63%

2,606

1,631

1.4%

Virginia

640

58%

66%

1,742

1,015

0.8%

Washington

480

64%

58%

6,336

4,079

3.4%

West Virginia

80

34%

63%

152

51

0.0%

Wisconsin

10,860

54%

55%

27,572

14,895

12.5%

Wyoming

20

5%

0%

128

6

0.0%

Total U.S.

47,273

50.4%

55.0%

201,816

119,467

100.0%

* Extrapolated from 2013 production data and assumes that the operations that enrolled are representative of the respective state's milk production distribution.

** NASS data not available, number of dairy operation based on industry data.

 

Upcoming reports:

  • December Milk Production report on January 22
  • December Cold Storage report on January 22
  • December Livestock Slaughter report on January 22
  • January Agricultural Prices report on January 30

 

Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wisconsin. He can be reached at 877-256-3253 or through their website at www.agdairy.com.

The thoughts expressed and the data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed are subject to change without notice. There is risk of loss in trading and my not be suitable for everyone. Those acting on this information are responsible for their own actions. This material has been prepared by an employee or agent of AgDairy LLC and is in the nature of a solicitation. By accepting this communication, you acknowledge and agree that you are not, and will not rely solely on this communication for making trading decisions. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. There is risk of loss in commodity trading may not be suitable for recipients of this communication.